Case Study - Yetagun Gas Field (Andaman Sea, Myanmar)
How Doubling its Value Came About

Situation

Texaco (Operator) was selling its interest in the Yetagun field, which had only very recently taken Final Investment Decision (FID) (capital expenditure > $2 billion). No further appraisal of the field was planned post-FID. A member of the Advance team undertook a detailed review of the asset shortly after joining Premier Oil (Singapore), who were a non-operating partner having originally licensed the block. Prior to joining Premier, the Advance team member had held a senior advisory position with Petronas Carigali in Vietnam.

Solution

It quickly became apparent from the review that with 4 wells in a square pattern in the central area of the field there was significant unappraised potential in the east and south of the field. If drilled it had the potential to increase the 2P reserves from 1.8 Tcf to 2.9 Tcf, which was the volume needed to maximise the DCQ to 400 MMscf/d, as allowed under the gas sales agreement (GSA). The GSA also had a drop-dead, certification date to fix the DCQ for all time of 1st March 1999. Success in reaching a DCQ of 400 MMscf/d would double the value of the asset.

Premier management and subsequently the Board were persuaded to pre-empt on the sale.

Texaco had agreed a sale to AGIP. However, one of the bidders had been Carigali, and the Advance team member knowing Carigali’s management wellwas sure that they would join Premier in pre-empting on the AGIP deal, as the price was now fixed. Carigali’s senior management were duly contacted and agreed to Premier taking a small percentage of Texaco’s equity, Carigali taking the remainder and to Premier becoming operator.

The other partners, PTTEP and Nippon, plus MOGE (Burmese) were then also persuaded to allow Premier to become operator, and the pre-emption proceeded as planned.

Result

The Advance team member was appointed General Manager of the entire operation in Yangon (peak manpower, 1500). Five development wells, two appraisal wells and two exploration wells were drilled by the end of 1998. The two appraisal wells (east and south) targeted what had been defined by the certifier as the zone of ‘Possible Reserves’ (10% probability of success), and were both successful (see ringed wells), plus a near field exploration well, Yetagun North, was a discovery of a further 0.2 Tcf.

The field reserves were re-certified in February 1999 just before the certification ‘drop-dead’ date, securing 2P reserves of 3.2 Tcf and thereby securing a maximum contractual gas sales rate of 400 MMscf/d. This doubled the net present value of the field from $420 MM to $840 MM only 15 months after Premier had taken over the operatorship. Furthermore, the total cost of the two, originally unplanned appraisal wells was less than $20 MM, meaning a greater than 20x value multiple for their cost.

Premier sold its 27% interest in the Yetagun field in 2003 for an equivalent, total asset value of $1.5 billion.

Today

WoodMac reports Yetagun’s ultimate recovery to be 3.3 Tcf and Yetagun North is being tied-in to the original platform, installed 21 years ago.